Leasehold: Termination and Security of Tenure

Before Parliament intervened to protect business tenants, leases ended in a handful of common law ways. These routes still operate today, both for residential and commercial leases, and they remain the starting point even where statute later layers protection on top.

Source: Map of the Legal systems of the world (en) by Maximilian Dörrbecker ( Chumwa ), CC BY-SA 2.5.

Effluxion of Time

The simplest route: a fixed-term lease terminates automatically by effluxion of time when the contractual term expires, without either party needing to serve notice. A ten-year lease granted on 1 January 2016 simply ends on 1 January 2026 — no letter required, no ceremony. The only complication is where statute (as you'll see below with business tenancies) stops this automatic ending from taking effect.

Notice to Quit (Periodic Tenancies)

A periodic tenancy — one running week to week, month to month, or year to year with no fixed end date — has no natural expiry moment to rely on. Instead, a periodic tenancy is terminated at common law by a notice to quit served by either landlord or tenant. The length of that notice is governed by the period of the tenancy itself:

Common law notice to quit rule: the notice must generally be at least as long as one period of the tenancy, unless the lease specifies a different length. For a yearly periodic tenancy, the required notice is, unusually, not one year but at least six months.

There's a second, easily overlooked requirement: a notice to quit must expire at the end of a period of the tenancy, unless the lease provides otherwise. Serve a notice on a monthly tenancy that expires mid-period, and it is simply invalid — the clock resets.

Break Clauses

Many leases build in an early-exit option: a break clause is a contractual right allowing the landlord or tenant to terminate the lease early by serving notice. Break clauses are creatures of the specific contract, so their exercise is unforgiving:

Strict compliance: a break notice must comply with every condition specified in the lease to be valid. There is no doctrine of "close enough."

Typical conditions include giving vacant possession and having paid all rent due — and some leases go further, requiring rent that has accrued but is not yet due (e.g. an apportioned quarter's rent) to also be settled before the break date. A tenant who leaves a filing cabinet behind, or pays rent a day late, can find an otherwise-valid break notice thrown out by a court because one condition was missed.

Surrender

Surrender is the consensual route: the tenant yields up the remainder of the term to the landlord, who accepts the surrender, and the lease ends early by agreement. There are three flavours, each with its own formality rule:

1. Express surrender — must be made by deed, under section 52 of the Law of Property Act 1925, to be legally effective. Deeds matter here precisely because surrender extinguishes a proprietary interest.
2. Informal surrender — the LPA 1925 carves out an exception: a surrender may take effect informally where the lease was granted for three years or less at a market rent without a fine. This mirrors the exception for creating such short leases informally in the first place.
3. Surrender by operation of law — arises not from any document but from conduct: both landlord and tenant behave in a way that is unequivocally inconsistent with the lease continuing — classically, the tenant hands back the keys and the landlord re-takes possession, changes the locks, or re-lets to someone else.

Merger

Merger is surrender's mirror image. Instead of the tenant giving the term back to the landlord, the tenant acquires the landlord's interest — the immediate reversion — so that the lease and the reversion merge into one estate. You cannot hold a lease from yourself, so the lesser estate is absorbed and the lease ends.

Forfeiture

Forfeiture is the landlord's weapon: the right to bring a lease to an end early following a breach of covenant by the tenant, provided the lease reserves a right of re-entry or forfeiture clause. Without that clause, there is no forfeiture right at all — it must be reserved in the lease.

The procedure differs sharply depending on what was breached:

Section 146 LPA 1925 notice — three essential ingredients:

1. Specify the breach complained of.
2. Require the tenant to remedy the breach, if it is capable of remedy.
3. Require compensation in money, if the landlord wants it.

Skip any of these and the notice — and the forfeiture built on it — is invalid.

Two safeguards protect the tenant even after a valid forfeiture:

• Relief from forfeiture: a tenant or subtenant may apply to the court for relief after the landlord has forfeited, or begun proceedings to forfeit. Courts routinely grant relief where the tenant puts the breach right and compensates the landlord — forfeiture is meant to secure compliance, not to hand the landlord a windfall.
• Waiver: a landlord loses (waives) the right to forfeit if, with knowledge of the breach, they perform an act that unequivocally recognises the lease is still alive — most commonly, demanding or accepting rent after the breach is known. This is why landlords who discover a breach must act fast and avoid touching the rent account.

How re-entry actually happens also depends on what the property is used for:

A landlord may forfeit a commercial lease by peaceable re-entry (physically re-entering and changing the locks) without any court proceedings, provided the premises are not let as a dwelling. But under the Protection from Eviction Act 1977, a landlord cannot forfeit by peaceable re-entry where the premises are let as a dwelling and are occupied — court proceedings are mandatory instead. This distinction protects residential occupiers from being locked out on the landlord's say-so.

Disclaimer in Insolvency

One final, often-forgotten route: where the tenant becomes insolvent, a liquidator or trustee in bankruptcy may disclaim an onerous lease under the Insolvency Act 1986, bringing the tenant's interest to an end. This lets an insolvency practitioner shed a liability (an unprofitable lease) rather than let it drag down the estate available for creditors.

Everything above is common law. But for a huge swathe of commercial tenants, common law termination simply doesn't work as described — because Part II of the Landlord and Tenant Act 1954 intervenes to give business tenants continuing occupation rights. This is the statutory heart of the topic, and it is where SQE1 scenarios concentrate.

Source: Houses of Parliament in 2022 by Terry Ott from Washington, DC Metro Area, United States of America, CC BY 2.0.

Does Part II Apply?

Section 23(1): Part II applies to a tenancy where the property is occupied by the tenant for the purposes of a business carried on by the tenant. "Business" is interpreted broadly (any trade, profession, or employment), but the occupation-for-business link is essential.

Source: Münster, LVM, Bürogebäude -- 2013 -- 5149-51 by Dietmar Rabich, CC BY-SA 4.0.

A useful extension: under section 23(1A), occupation by a company in which the tenant holds a controlling interest counts as occupation by the tenant personally. This stops corporate structuring from accidentally destroying protection — a sole director-shareholder can hold the lease personally while their company trades from the premises, and Part II still bites.

Exclusions — Part II does not apply to:

• A tenancy granted for a fixed term of six months or less (section 43(3)) — unless it contains a right to renew, or the tenant (with any predecessor in the business) has been in occupation for more than twelve months. Short lets are excluded to avoid burdening genuinely temporary arrangements, but the exclusion is defeated by cumulative long occupation.
• Agricultural holdings and farm business tenancies (section 43) — governed by their own specialist regimes.
• Mining leases (section 43).

Continuation Beyond the Contractual Term

Here is the pivotal statutory effect: a protected tenancy does not end automatically at the expiry of the contractual term. Instead, under section 24(1), it continues on the same terms until brought to an end in accordance with the Act. This is the single biggest departure from the common law picture above — effluxion of time simply does not terminate a Part II tenancy. Termination must be engineered through one of the statutory mechanisms below.

Landlord-Initiated Termination: The Section 25 Notice

A landlord who wants to end a protected tenancy — whether to reclaim the property or to renegotiate terms — must serve a section 25 notice.

Section 25 notice — timing and content:

• The termination date specified must be not more than twelve months nor less than six months after the notice is given.
• The notice must state whether the landlord opposes the grant of a new tenancy.
• If opposed, the notice must specify one or more of the statutory grounds in section 30(1).
• If not opposed, the notice must set out the landlord's proposed property, rent, and other terms for the new tenancy.

Tenant-Initiated Renewal: The Section 26 Request

A tenant can take the initiative instead, but only in limited circumstances: a section 26 request is available only if the current tenancy was granted for a term of years certain exceeding one year, or for a term of years certain and thereafter from year to year. A tenant on a genuinely short fixed term cannot use section 26.

Section 26 request — timing:

• Must propose a start date for the new tenancy not less than six nor more than twelve months after the request.
• That date must be no earlier than the date the current tenancy would end by effluxion of time.
• The landlord has two months from the request to serve a counter-notice stating opposition and specifying the section 30(1) ground relied on.

A tenant cannot make a section 26 request if the landlord has already served a section 25 notice, or the tenant has already given notice to quit or a counter-notice — the parties get one shot at triggering the renewal machinery, not two competing ones.

The Seven Grounds of Opposition: Section 30(1)

If a landlord wants to resist renewal, the ground relied on must come from a closed list of seven in section 30(1). These fall into two families with very different consequences.

Grounds (a), (b) and (c) are fault-based — the tenant caused the problem, so no compensation is owed. Grounds (d), (e) and (f), and ground (g), are no-fault — the tenant is being displaced through no wrongdoing of their own, so compensation logic kicks in (see below).

Ground (g) carries a specific anti-avoidance restriction: under section 30(2), a landlord is generally barred from relying on ground (g) if their interest in the property was purchased or created within the five years before the end of the current tenancy. Otherwise a landlord could buy a reversion shortly before expiry purely to evict a sitting tenant under the guise of "wanting it for my own business."

Compensation: Section 37

Section 37 compensation is payable only in a narrow circumstance: where the court is precluded from granting a new tenancy solely by reason of grounds (e), (f) or (g). If the landlord succeeds on a fault ground like (a)–(c), or if the tenant simply loses on the merits some other way, no section 37 compensation arises.

Calculating section 37 compensation: Compensation = rateable value of the holding × the prescribed multiplier.

The multiplier doubles to twice the rateable value if the tenant — or a predecessor carrying on the same business — has occupied the premises for business purposes for 14 years or more.

This is a classic exam trap: students remember "rateable value" but forget the 14-year doubling rule, or misapply it to fault-based grounds where no compensation is due at all.

Contracting Out: Section 38A

Landlords and tenants can agree in advance to exclude security of tenure entirely, using the procedure in section 38A — extremely common for short commercial lettings where the landlord wants certainty of getting the property back.

Section 38A contracting-out procedure:

1. The landlord serves a "health warning" notice on the tenant before the tenant becomes contractually bound.
2. If served at least 14 days before the tenant is bound, the tenant may make a simple declaration confirming receipt and acceptance of the consequences.
3. If served less than 14 days before the tenant is bound, the tenant must instead make a statutory declaration before an independent solicitor — the compressed timeline demands a more solemn form of acknowledgment.
4. The lease itself must refer to or contain both the warning notice and the tenant's declaration, or the contracting-out is not validly achieved.

Think of the 14-day threshold as a proxy for genuine reflection time: enough notice, and a simple signed acknowledgment will do; too little notice, and the law insists on independent legal witnessing to make sure the tenant actually understood what they were giving up.

Applying to Court

Once the section 25/26 machinery is in motion, someone eventually has to go to court if the parties can't agree terms between themselves.

Court application deadlines (sections 29A and 29B): An application for a new tenancy, or for termination of the current tenancy, must generally be made before:

• the statutory end date in the section 25 notice, or
• the day before the date specified in the section 26 request.

There's a built-in cooling-off period for tenant-led requests: where the tenant has made a section 26 request, the tenant may not apply to court within the first two months of the request, unless the landlord has already served a counter-notice opposing renewal — in which case there's no reason to wait, since the landlord's position is already clear.

The deadline itself is not immovable: under section 29B, the parties may agree in writing, before the time limit expires, to extend it — and may agree, by a further written agreement made before the previously extended period expires, to extend it again. This gives negotiating parties breathing room without forcing a protective court filing purely to preserve rights.

What the Court Can Do

If the landlord establishes one of the section 30(1) grounds, the court may order termination without granting a new tenancy. But there's a safety valve for grounds tied to a future event: under section 31(2), where the landlord relies only on grounds (d), (e) or (f) and the court would only have been satisfied of that ground at a later date (say, redevelopment can't practically start for another eight months), the court may substitute a termination date up to one year later than the date originally specified. This avoids forcing a tenant out before the landlord is actually ready to act on the ground relied upon.

Interim Rent

While all this renewal machinery grinds through negotiation and possibly litigation, what rent is payable? Interim rent under section 24A answers that: it is the rent payable for the period between the termination of the old tenancy and the grant or refusal of a new tenancy. Either landlord or tenant may apply for interim rent, generally within six months of the termination of the old tenancy.

The basis for calculating interim rent is not uniform — under sections 24C and 24D, it differs depending on (a) whether the tenant occupies the whole of the property, and (b) whether a new tenancy is in fact granted. In broad terms, where a new tenancy follows, interim rent tracks the new tenancy's rent (subject to adjustment); where no new tenancy follows and the tenant is being displaced, a market-rent-based approach is more likely to apply.

Tenant-Initiated Termination Under Section 27

A protected tenant is not locked in forever — they too can walk away, and section 27 provides two distinct routes depending on timing:

• Section 27(1): a tenant may terminate a fixed-term tenancy protected by Part II by giving the landlord not less than three months' written notice before the contractual term ends, which disapplies the section 24 continuation entirely — the tenancy simply ends at the contractual expiry as if Part II never existed.
• Section 27(2): a tenant occupying under a tenancy that is already continuing by virtue of section 24 may terminate it by giving not less than three months' written notice, which — unlike a common law notice to quit — may expire on any day.

Both routes share a floor: the tenant's notice cannot be given, or does not disapply continuation, if the tenant has been in occupation for less than one month — a brief safeguard against a tenant terminating before they've meaningfully taken up the tenancy.

One historical wrinkle worth knowing for context: section 27 notices used to have to expire on a quarter day. That requirement was removed by statutory reform, so a section 27 notice may now expire on any day, subject to the ordinary apportionment of any rent paid in advance.

The exam-relevant skill here is not memorising each section number in isolation — it's recognising which regime governs a given fact pattern. Ask first: is this a business tenancy occupied by the tenant, and does it survive the section 43 exclusions? If not, you're squarely in common-law territory — effluxion, notice to quit, break clauses, surrender, merger, or forfeiture, each with its own formality trap. If it is protected, the contractual end date becomes almost irrelevant, and the real question becomes procedural: who served what notice, when, specifying which ground, and did anyone miss a deadline that would have preserved or destroyed their position. Solicitors earn their fees precisely in that procedural precision — a single date wrong on a section 25 notice can cost a landlord years of continued occupation they never wanted, or cost a tenant a business premises they were entitled to keep.